Latest borrow levels to engage in a new short sale of Twilio Inc. (TWLO US), the cloud communications platform company, are now trading at 100% fee on an annualized basis. Unsurprisingly, this surge in financing cost coincided with the stock price peaking on 9/28, as rates spiked from 60% to 100% fee at this time. Despite the recent 30% pullback in the stock price since hitting its high, shares are still up 220% since its IPO back in June.
The S3 Crowding Indicator, a measure of the magnitude of real-time shorting activity relative to market cap and float, exhibited a notable spike in borrow demand immediately after the company filed for a secondary offering of common stock on 10/7, which will dilute existing shareholders. According to the S3 Velocity Indicator, a measure of the real-time relative change in shorting activity, there has been a relentless upward slope in shares borrowed since the second week of August. Current short interest is now estimated to be as high as 50% of floated shares, making Twilio one of the most popular US-listed short plays for 2016.
Upcoming events that may trigger further short selling are full Q3 earnings set to be announced on 11/3, and IPO lock up expiry on 12/20 when most trading restrictions are removed for insiders and majority stakeholders to sell shares. Historically, shares tend to trade lower leading up IPO expiry as the market anticipates early investors to realize profits. In turn, this will result in additional borrow liquidity hitting agency lending programs giving shorts an opportunity to increase positions, putting even further pressure on the stock price.
For more information on the above analysis, please contact:
Matthew Unterman, Director, S3 Partners, LLC
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